NEW YORK (AP) - A recurrence of investors' anxiety about the economy gave Wall Street its biggest loss in five weeks.

The major indexes fell one percent yesterday as investors worried that the market's steep gains in the past month could unravel if the economy does not show more signs of strengthening. Warnings about the health of banks and uneasiness ahead of the Federal Reserve's economic statement today led investors to dump financial stocks and wade into defensive areas like consumer staples companies and government debt.

Meanwhile, a record 10th straight monthly drop in wholesale inventories brought a fresh reminder that a recovery in the economy is likely to be gradual.

But many analysts said investors were not panicking yesterday. They were taking a much-needed pause following a rally that seemed to be going at breakneck speed. The Standard & Poor's 500 index had reached at its highest level since last fall, rising 15 percent in just four weeks and 49 percent from a 12-year low in early March.

"This sort of give-and-take is quite healthy," said Erik Davidson, managing director of investments at Wells Fargo Bank in Carmel, California. "You're up 50 percent in five months. That's 10 percent a month. In quote-unquote normal markets that's five years worth of returns."

Moreover, traders often become jittery when the Fed policymakers meet to discuss interest rates. It is widely expected that the central bank will hold interest rates at their historic low of essentially zero, but investors are waiting to see what the Fed has to say about the economy when the meeting concludes today.

"It's pretty clear that a lot of people are pulling back any bets pending what is going to happen with the Fed," said Max Bublitz, chief strategist at SCM Advisors in San Francisco.

There were some troubling developments during the day, however. Downbeat comments from analysts about banks weighed on the market. Analyst Richard Bove of Rochdale Securities predicted that bank earnings won't improve for the second half of the year and that many companies will post losses.

"It just takes the euphoria feelings off the table," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams, referring to Bove's comments and recent optimism among investors.

With many traders on vacation, volume was light, which tends to skew price moves.

According to preliminary calculations, the Dow Jones industrial average fell 96.5, or one percent, to 9,241.45. It had been down as much as 121 points. It was the biggest drop since July 7, when the index lost 161 points. The Dow slipped 32 points on Monday.

The broader S&P 500 index also had its worst day since July 7, falling 12.75, or 1.3 percent, to 994.35.

The Nasdaq composite index fell 22.51, or 1.1 percent, to 1,969.73, while the Russell 2000 index of smaller companies fell 9.75, or 1.7 percent, to 562.12.

About three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion traded on Monday.

The Chicago Board Options Exchange's Volatility Index spiked in a sign of investors' nervousness. The VIX, also known as the market's fear index, rose 4.1 percent to 26.01, its highest level in a month. It is down 35 percent in 2009 and its historical average is 18 to 20. It reached a record 89.5 in October at the height of the financial crisis.

Bond prices jumped as stocks retreated. The gains followed a solid showing at the first of the week's three auctions for a record $75 billion in debt. Prices often fall when the government introduces supply to the market. The sale yesterday was for $37 billion in three-year notes and the government will auction $23 billion in 10-year notes today.

Investors watching for a drop in buyers because that could force the government to increase the interest it pays, which would drive up borrowing costs for consumers and slow an economic recovery.

The yield on the three-year note, which moves opposite its price, fell to 1.72 percent from 1.78 percent on late Monday.

The yield on the benchmark 10-year Treasury note fell to 3.67 percent from 3.78 percent.

Among banks, Citigroup Inc. fell 25 cents, or 6.4 percent, to $3.69. Wells Fargo & Co. slid $1.75, or 6.1 percent, to $26.89.

The KBW Bank Index, which tracks 24 of the nation's largest banks, fell 4.4 percent.